Cartel Damages Claims and the Passing-On Defence

34 Pages Posted: 27 May 2008

See all articles by Theon Van Dijk

Theon Van Dijk

affiliation not provided to SSRN

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: June 2007

Abstract

We develop a general economic framework for computing cartel damages claims. We decompose a direct purchaser plaintiff's lost profits from the cartel in three parts: the anticompetitive price overcharge (or cost effect), the pass-on effect and the usually neglected output effect. The pass-on effect is the extent to which the plaintiff passes on the price overcharge by raising its own price, and the output effect is the lost business resulting from this passing-on. To evaluate the relative importance of the three effects, we subsequently introduce various models of imperfect competition for the plaintiff's industry. We show that an adjusted passing-on defense (i.e. accounting for the output effect) is justified under a wide variety of circumstances, provided that suficiently many of the plaintiff's rivals are affected by the cartel. We derive exact discounts to the price overcharge, which depend on relatively easy-to-observe variables, such as the pass-on rate, the number of firms, the number of firms affected by the cartel, and/or the market shares. We finally extend our framework to assess the cartel's total harm (on purchaser plaintifs and consumers), further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments in U.S. and European antitrust policies.

Keywords: cartels, damages, passing-on defence

JEL Classification: L40

Suggested Citation

Van Dijk, Theon and Verboven, Frank, Cartel Damages Claims and the Passing-On Defence (June 2007). CEPR Discussion Paper No. DP6329, Available at SSRN: https://ssrn.com/abstract=1136655

Theon Van Dijk (Contact Author)

affiliation not provided to SSRN

No Address Available

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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